YCG Investments
“If you buy above average businesses at below average prices, on average, we believe you should come out ahead.” — Brian Yacktman

Raising Prices

RECENT THOUGHTS

The Future, Innovation, and Investing Implications

Nike - Just Do It!

Brexit surprise, now bubble territory?

Wells Fargo: A Heuristic Opportunity

Richemont

The front cover of the WSJ had an article discussing the current sugar shortage (“Food Firms Warn of Sugar Shortage”). It stated that large food companies such as Kraft and General Mills are petitioning the Agriculture Department to ease import restrictions (the government imposes restrictions on how much tariff-free sugar they can import). The food companies warned that the alternative would be consumers paying higher prices. Notice, they didn’t warn that their own profit margins would be crimped. This is because they know they have pricing power. The majority of “goods” they offer have more inelastic demand – they make necessities, and their goods are branded. Thus, by not easing import restrictions, the increase in prices of sugar get passed onto the consumer through higher prices in the end product, and essentially become an indirect tax to the consumer. This brings up a point we have been making in many of our investment letters – the importance of owning businesses with non-durable, necessary, branded products who have the ability to raise prices, particularly during times of inflationary pressure. We may not see the inflation for quite some time, but when that day comes, these businesses will be prepared for it and they will continue to be profitable.

Disclaimer: The specific securities identified and discussed should not be considered a recommendation to purchase or sell any particular security. Rather, this commentary is presented solely for the purpose of illustrating YCG’s investment approach. These commentaries contain our views and opinions at the time such commentaries were written and are subject to change thereafter. The securities discussed do not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. These commentaries may include “forward looking statements” which may or may not be accurate in the long-term. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable. Past performance is no guarantee of future results.

Posted by: Brian Yacktman | August 13, 2009 | Permalink

« Return to Blog Home Page